Pork deal illustrates how Chinese consumption will impact supply chains

There has been a lot of speculation over the possibility of changes in supply chain geography over the past couple of years. Anecdotal evidence of ‘near-sourcing’ suggests a movement of some aspects of manufacturing towards the US and away from China for example. Quantifying this is more difficult.

One recent deal however, offers a stronger illustration of how supply chains are restructuring as the global economy evolves. Two weeks ago, a Chinese pork processing company called Shaunghui offered to buy the leading American pork farming and processing company, Smithfield Foods.

The logic underlying the Chinese company’s bid is its wish to sell American pork to Chinese consumers who feel that domestic Chinese food products are of inferior quality. It is also likely that US based production offers more opportunity for low cost expansion of production than in China. The production of pork in China is increasingly moving into the hands of larger producers and away from small family farmers. However, compared to US agriculture, with its cheaper feed costs and large economies of scale, China may have less room for growth. Creating a company that spans the supply chain from major producer to major consumer could make sense.

In addition, China is a massive consumer of pork. China consumed 52m tonnes of pork in 2012 according to the US Department of Agriculture, with domestic production accounting for most of this, but imports continuing to rise.

The implications of such a development for the logistics sector are fairly clear. Not only is reefer traffic likely to grow, but with more than a billion mouths to feed, the trade is likely to be increasingly dominated by Chinese consumption. In agricultural exporting regions such as Canada, US, Australia/New Zealand, Brazil, Argentina, but also many parts of Europe, the intensity of food logistics provision will need to increase in order satisfy a growing appetite for fresh, high quality food products for the Chinese consumer.

The result is likely to be a globalised agricultural supply chain that will provide substantial sea-freight volumes into China, but also create a need for more sophisticated food logistics infrastructure.

Ti’s Emerging Logistics Markets Conference in Singapore will analyse the role Chinese consumers will play in shaping the geographical development of supply chains. The full programme and additional details can be found by clicking the highlighted link.